The Defiance Daily Target 2X Long MSTR ETF (MSTX), a leveraged ETF tracking MicroStrategy's stock, plunged 5.47% in pre-market trading on Monday. The drop comes amid growing concerns about the valuation and risks associated with MicroStrategy's strategy of holding a massive Bitcoin position.
MicroStrategy, a software company turned "Bitcoin treasury company," has been aggressively issuing debt and equity to fund its Bitcoin purchases. The company now holds over 2% of the total outstanding Bitcoins, worth more than $40 billion. However, MicroStrategy's market value is trading at an astonishing premium of nearly 2.5 times the value of its Bitcoin holdings, raising concerns about its stock valuation.
The news article highlights several risks surrounding MicroStrategy's approach, including the potential dilution from its equity issuances, the burden of debt, and the presence of leveraged ETFs like MSTX and MSTU, which could amplify volatility and exacerbate selling pressure if investors exit these products. Additionally, doubts are raised about the long-term viability of MicroStrategy's business model as a "Bitcoin treasury company."
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